Wednesday, February 15, 2006

Alsbridge, a consulting form advising on outsourcing, shared Services and offshoring has come out with a set of outsourcing trends for 2006 in a recently published report . The key highlights and my views :

1. US-based outsourcing providers need to increase the percentage of offshore resources used to provide their client-facing functions and more importantly their own G&A functions. (My View : Absolutely- clients would/should demand to know the distribution – the big nines in the business today are in my opinion not too transparent about their offshore presence/strength – reflecting in inability to leverage economic benefits properly for customers/prospects)

2. Offshore “client owned” captive centers will continue to be a major strategy achieving 50 percent market share. The report says,” Fifty percent or more of BPO jobs will go to "client owned" captive centers. Alsbridge experience indicates that the term "offshoring" now means "offshore captive" first and "offshore outsourcing" second”. ( My view : mostly correct as we see things today – but I still believe that this offshore BPO services have to evolve lot better forcing a change in this pattern of distribution – captive centers may over a period of time give way to external outsourcing – the market is too hot and the demand is too high – it may call for specialized organizations to manage things more effectively.)

3. The growth rate of Indian providers will accelerate as their profit margins improve and they move to acquire more talent and win more complex projects( My View – 2006 would be a watershed year for offshore service providers – one can expect a series of megadeals to get announced from the top tier India headquartered offshore enterprises. Also see this set of predictions ). I also wrote earlier,” Most of the indian big players are said to have hired big six veterans to go after such deals. An acquisition of the big players may be the final assault on the dominance of big six – but this could mean that the Indian companies may need to have a different mindset to manage –(with limited margins and more long term in their outlook).It may disrupt the traditional economics of the indian players, but nonetheless would be a move much needed in time. Certainly, I expect that one/two acquistions would be made by indian players in this space in 2006. This is possible, as adaptability and speed of operations have always characterized their growth in the last decade – the important thing is to not lose sight of humongous opportunities that lay in front and go after them as aggressively as they used to do while growing”.

4. M&A will continue to play a major role in the global provider community in 2006 and could result in the consolidation of one or more of the major outsourcing provider organizations. Any consolidation among the "Global Nine" (ACS, Accenture, Atos Origin, BT, Capgemini, EDS, HP, IBM, and T-Systems) would have a serious impact on the global market as a whole. Of particular interest would be the impact on the current commodity-like procurement process used by buyer organizations. Provider consolidation may allow the providers to opt out of participating in such processes and therefore cause a shift in the market. (My View : Overdue – Noises getting heard for the past six months)

I agree that the outsourcing landscape will change dramatically in 2006. Buyers and providers need to clearly think through the trends that are impacting their relationships.